Office Depot Reaches Settlement With its Largest Shareholder

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Office Depot Reaches Settlement With its Largest Shareholder

 user 2013-08-22 at 11:18:26 am Views: 195
  • #3005

    Office Depot Reaches Settlement With its Largest Shareholder, Starboard Value
    By Marcia Heroux Pounds, Sun Sentinel
    Office Depot

    Office Depot reached a settlement with its largest shareholder, Starboard Value, on the eve of the company's annual meeting Wednesday, avoiding a proxy fight.

    The private equity firm, which owns nearly 15 percent of the stock, agreed to vote for Office Depot's board nominees in a deal that would seat three Starboard nominees on the company board, with two continuing if the merger with OfficeMax is completed.

    Shareholders voted for the $1.2 million merger in July and the companies hope to close the transaction by year-end.

    Chief Executive Neil Austrian and Starboard Value CEO Jeffrey Smith both said the settlement was "in the best interest of shareholders."

    Austrian said Office Depot saw by early voting that shareholders were favoring at least some of Starboard's nominees. So after several days of negotiations with Starboard, the parties agreed late Tuesday that two of Office Depot's directors would resign, the board would be increased from 10 to 11, and Cynthia Jamison, Jeffrey Smith and Joseph Vassalluzzo would be appointed to the board.

    Smith and Vassalluzzo will continue as directors if the merger is completed.

    Smith, who flew in from his New York office for the Boca Raton meeting, called the outcome a "very good result."

    "It's all about the board working together," said Smith, whose private equity firm's agreement with Office Depot includes a payment of up to $800,000 to settle Starboard's lawsuit filed in June to compel Office Depot to hold an annual meeting.

    Shareholders, who came to the meeting expecting to vote or at least hear more about activist shareholder's plans for the company, seemed surprised to learn of the settlement. They still were able to vote for Office Depot's slate of proposed shareholders, but not for Starboard's nominees. All of Office Depot's nominees are current directors with the addition of Michael Massey, former CEO of Payless ShoeSource operator Collective Brands.

    But Robert Brighton Jr., a securities lawyer with Shutts & Bowen in Fort Lauderdale, said there wasn't serious risk of Starboard getting its full slate of directors approved. "The percentage of insurgencies is low," he said.

    Office Depot's concern probably revolved around those directors who will select a new CEO for the combined companies. With the agreement, former Staples executive Joseph Vassalluzzo will be appointed to fill resigning board member Marsha Evans' spot and join the CEO search committee.

    Coral Springs shareholder Rol Meillier said he supports Office Depot's nominees. "They have a plan in place and it should be executed," he said.

    Tom Thayer, a shareholder who resides in Boca Raton, said he is generally opposed to "dissident shareholders. They're not out to build a company," he said.

    Despite weeks of proxy filings and letters to shareholders by both Office Depot and Starboard, Austrian and Smith were circumspect during the meeting. Related parties have agreed not to disparage each other as part of the settlement, according to the securities filing.

    The two resigning board members are Evans, a retired a retired rear admiral for the U.S. Navy who has been a director since 2006, and W. Scott Hedrick, a director since 1991.

    Following the appointment of the nominees, the board will elect a lead director who is not an executive of Office Depot. Starboard Value joined with others seeking change at Office Depot by buying stock starting in 2012.

    Following the special shareholder meeting on the merger, Austrian said the changes the company has made to turn around the business, and its proposed merger with OfficeMax, had nothing to do with Starboard's actions.

    The merger is still under Federal Trade Commission review, but Office Depot and OfficeMax are hoping to close the transaction by year-end. The No. 2 and No. 3 office-supply retailers say combining forces would help them better compete against Staples as well as online and discount retailers.

    Austrian said once a CEO is selected, the CEO would likely make a recommendation to the board about where the combined Office Depot-OfficeMax headquarters would be located. OfficeMax is based in Naperville, Ill. Office Depot employs 1,700 workers in Boca Raton.

    He said he has discussed potential economic incentives to keep Office Depot in Boca Raton with Gov. Rick Scott and Enterprise Florida, the state's public-private partnership for economic development. But "we have not put a formal plan together."

    Starboard's Smith said he had "no predisposition" as to the company's headquarters location.

    Vassalluzzo said he lives in Boca Raton, so keeping the headquarters there would be "convenient."